KEY POINTS
- CBN rate hikes drove fixed income demand.
- Private sector crowded out by high rates.
- Investor confidence returned with policy signals.
The Central Bank of Nigeria’s aggressive interest rate hikes significantly boosted fixed income demand in 2024, the Association of Issuing Houses of Nigeria (AIHN) has said.
The apex bank raised benchmark rates eight times during the year, with a cumulative increase of 875 basis points to 27.5 percent in November.
Speaking at AIHN’s Annual General Meeting in Lagos, President Kemi Awodein said the measures were aimed at curbing inflation. “Key drivers for fixed income instruments in 2024 included CBN’s aggressive interest rate hikes to combat inflation,” she said.
CBN policy fuels fixed income demand Nigeria
The high interest rate environment initially crowded out private sector activity. Most of the sales were in Treasury notes and open market operations. In 2024, N12.83 trillion worth of notes were traded, compared to N716.7 billion in 2023.
“Despite these challenges, as the year progressed, there was renewed investor confidence, leading to increased capital inflows,” Awodein said. She attributed the recovery to supportive government policies and anticipation of rate cuts in other markets. A milestone was the successful issuance of the first domestic dollar bond by the Debt Management Office.
Private sector investment constrained by high rates
Equity capital raises also surged, driven by the CBN’s March 2024 recapitalisation directive. Access Bank Plc and a few other banks made agreements to meet the government’s higher capital requirement.
However, it was still hard to raise debt financing because the government constantly issued additional debt. Most of the action was in commercial paper. For example, Seplat Energy sold $650 million in bonds to build its energy business, and Airtel Africa sold $500 million in capital to improve telecommunications infrastructure.
AIHN’s financial reports for 2024 showed that important KPIs had gone higher. The entire amount of money and debt rose from N452.6 million in 2023 to N518.2 million. The quantity of money pouring in also grew, going from N86.56 million to N123.6 million. The group also spent more money, but it still had a surplus of N62.9 million, which was higher than the N36.4 million it had in 2023.
Awodein said that the developments show that Nigeria’s fixed income market is strong even though interest rates are high. They also show that the monetary policy needs to be balanced to get more private sector businesses involved.
